"Since these small stars are so common, the nearest Earth-like planets could be just 13 light-years away," says Dressing.

"We thought we would have to search vast distances to find any Earth-like planets, we now realise another Earth could be in our own backyard, waiting to be discovered."

Red dwarfs have surface temperatures of under 4000°C and contain fewer than 40 per cent of the Sun's mass, making them smaller, cooler and just a thousandth as bright.

Despite their dimness, Dressing says these stars are good places to look for Earth-like planets.

"Since the star itself is relatively small, an Earth-sized planet would block out more of the stars light as it transits [passes] in front of the star," says Dressing.

"And since a planet has to orbit a cool star closer in order to be in the habitable zone, it's more likely to transit from our point of view, potentially making it easier to detect."

In research to be published in the Astrophysical Journal, Dressing and colleagues examined data gathered by NASA's planet hunting Kepler Space Telescope.

The researchers reviewed the size of the small stars and determined how many have Earth-like planets orbiting in the star's habitable zone - the distance from a star where liquid water could exist on a planet's surface.

They identified 95 planetary candidates orbiting red dwarf stars. This implied that 60 per cent of such stars have planets smaller than Neptune. However, most weren't quite the right size or temperature to be considered truly Earth-like.

The researchers located three planetary objects, located between 300 and 600 light years away, that were both similar in size to Earth and orbited in their host star's habitable zone.

Life on a red-dwarf planet?

Young red dwarf stars emit strong flares and ultraviolet light, but an atmosphere could protect life on the planet's surface, says Dressing.

"A reasonably thick atmosphere or deep ocean could transport heat around the planet," she says.

As Kepler has a narrow field of view - it looks for planets orbiting Sun like stars in the direction of the constellations Cygnus and Lyra - there could be even more planets orbiting red dwarfs than the study has identified, says Macquarie University astronomer Dr Craig O'Neill.

But he is not optimistic about the chance of finding life around these stars.

If a planet orbits too close to its star it would be tidally locked, with the same side always facing the star and the other side in eternal night.

"Being so close and tidally locked to their stars is a real show-stopper for life," O'Neill says.

"Because the planet's locked and not rotating means there's no magnetic field to protect you."

"And the fact that you're so close to such an erratic star means you're being periodically sterilised by the flares and radiation being generated."

This would also cause tidal heating inside the planet, evaporating surface water which would then be blown into space, he adds.